Vallco Special Area Real Estate Market Assessment
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Report Vallco Special Area Real Estate Market Assessment Prepared for: City of Cupertino Prepared by: Economic & Planning Systems, Inc. May 14, 2018 EPS #171128 Table of Contents 1. INTRODUCTION AND KEY FINDINGS ............................................................................ 1 2. SOCIOECONOMIC CONTEXT ...................................................................................... 5 Population ................................................................................................................ 5 Employment ............................................................................................................. 6 3. RETAIL REAL ESTATE MARKET CONDITIONS ................................................................. 12 Market Trends ........................................................................................................ 12 Pipeline Projects ..................................................................................................... 15 Retail Conclusion .................................................................................................... 16 Project Profiles ....................................................................................................... 17 4. OFFICE REAL ESTATE MARKET CONDITIONS ................................................................. 22 Market Trends ........................................................................................................ 22 Pipeline Projects ..................................................................................................... 25 Office Conclusion .................................................................................................... 25 Project Profiles ....................................................................................................... 26 5. RESIDENTIAL REAL ESTATE MARKET CONDITIONS .......................................................... 29 Residential Permitting .............................................................................................. 29 Market Trends ........................................................................................................ 31 Pipeline Projects ..................................................................................................... 34 Residential Conclusion ............................................................................................. 35 Project Profiles ....................................................................................................... 36 6. HOTEL MARKET CONDITIONS .................................................................................. 40 Hotel Conclusion ..................................................................................................... 40 Project Profiles ....................................................................................................... 43 List of Figures Figure 1 Site Location Relative to Highways and Freeways .................................................. 1 Figure 2 Cupertino Employment Trend ............................................................................. 9 Figure 3 Employment Sector Trends in Santa Clara County ............................................... 10 Figure 4 Average Retail Rental Rate per Square Foot in Cupertino and Santa Clara County ... 13 Figure 5 Retail Market Performance in Cupertino ............................................................. 13 Figure 6 Retail Market Performance in Santa Clara County ................................................ 14 Figure 7 Taxable Retail Sales in Cupertino ...................................................................... 15 Figure 8 Office Lease Rates in Cupertino and Santa Clara County ...................................... 23 Figure 9 Office Market Performance in Cupertino ............................................................. 24 Figure 10 Office Market Performance in Santa Clara County ................................................ 24 Figure 11 Residential Building Permits in Cupertino ........................................................... 30 Figure 12 Residential Building Permits in Santa Clara County .............................................. 30 Figure 13 Total Residential Building Permits in Selected Jurisdictions ................................... 31 Figure 14 Average Multifamily Rental Rate per Square Foot in Cupertino and Santa Clara County ................................................................................... 32 Figure 15 Multifamily Market Performance in Cupertino ...................................................... 32 Figure 16 Multifamily Market Performance in Santa Clara County ........................................ 33 Figure 17 Value of Condominium (For-Sale) Units in Cupertino ........................................... 34 Figure 18 Cupertino Hotels ............................................................................................. 41 List of Tables Table 1 Santa Clara County Historical Population Growth Trends ........................................ 7 Table 2 Santa Clara County Jobs-to-Working Residents Ratios ........................................... 8 Table 3 Cupertino Commute Patterns .............................................................................. 9 Table 4 Santa Clara County Employment Trends by Industry ........................................... 11 Table 5 Santa Clara County Pipeline Retail Development ................................................. 16 Table 6 Santa Clara County Pipeline Office Development ................................................. 25 Table 7 Santa Clara County Pipeline Multifamily Development .......................................... 35 Table 8 Hotel Inventory in Cupertino............................................................................. 41 Table 9 Cupertino Hotel Performance (2017) ................................................................. 42 1. INTRODUCTION AND KEY FINDINGS The 58-acre Vallco Special Area (Site) is home to the 1970s-era Vallco Shopping Mall, located off of Interstate 280 in the City of Cupertino, as shown in Figure 1. The Mall’s decline was reaffirmed with the closure of its anchor tenants including Macy’s, Sears, and J.C. Penney during 2015 and 2016. As of early 2018, the 1.2 million-square foot Vallco Mall was about 85 percent vacant, with AMC Theatres, Cupertino Ice Center, Bowlmor Lanes, Cold Stone Creamery, Dynasty Seafood Restaurant, and Benihana remaining as tenants.1 As part of an effort to revitalize the Vallco Special Area (Site), the City is working to develop a Specific Plan, along with an Environmental Impact Report (EIR) that evaluates possible alternative reuses. Figure 1 Site Location Relative to Highways and Freeways Source: ArcGIS Online; Economic & Planning Systems, Inc. The City of Cupertino retained Economic & Planning System (EPS), as part of a larger consultant team (Team), to assist with the preparation of a Specific Plan for the Site. This initial assessment of market conditions and reuse opportunities seeks to provide essential, foundational local and regional market information to inform land use options. This report focuses on four primary land use types which EPS agreed upon with City staff, including office, retail, residential, and hotel uses. As part of this market assessment, EPS has considered socioeconomic and real estate market trends as well as detailed information concerning new, high-performing local and regional projects, including their market positioning, architectural format, amenity offerings, and market 1 AMC Cupertino Square 16 closed during March, after data collection for this report had concluded. Economic & Planning Systems, Inc. 1 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Vallco Special Area Real Estate Market Assessment Report 05/14/18 value. In subsequent tasks, EPS will coordinate with City staff and the Team to prepare detailed development options for the Site and to evaluate the financial viability of those alternatives. Key Findings 1. Cupertino’s economic performance and competitive market position is strong, primarily fueled by the dominant high-tech sector of Silicon Valley. Between 2006 and 2015, Cupertino experienced a 46.3 percent increase in jobs, largely driven by growth in the technology-driven sectors. In contrast, population growth in Cupertino over the last decade has lagged behind employment growth, and has been modest compared to growth rates of neighboring cities and Santa Clara County overall. While job growth has benefitted some residents, over 90 percent of Cupertino jobs are held by nonresidents. Despite the growth imbalance, the City’s jobs-to-resident ratio remains below some of the most employment rich jurisdictions in the County. The region’s strong economic climate has positioned Cupertino as a highly attractive location for development, with strong market performance across residential, office, and hotel land uses. Retail development potential is more limited, largely owing to national shopping trends that are negatively affecting brick-and-mortar retailers. Nonetheless, excluding Vallco from the market data reveals that retail vacancy in Cupertino is a very low 2 percent Citywide and there likely are strategic opportunities for new retail development. 2. The location of the Vallco Site is likely to successfully capture demand for office and housing but being between nearby, well-established “super-regional malls” and “lifestyle centers”